D i S o a ~ Oo = a e) co 2 > Pa oO c co) a kK Gm17. The nature of marketing AS Level 3.1 MeDonala’s marketing in Malaysia McDonald sets clear marketing objectives fr every markt lls in fe Malaya ths years targeting sas of 8 8b. Last year Achieved te cbjctve of 19% sls gros cue svategies a the county nude: 4+ Increase store numbers to 450 restaurants ‘+ further localisation ofthe menu to reflect Malaysian tastes Sales growth is panly the result of madernisation ofits customer restaurant experence or what MeDonala’s refers to as the ‘Exporence ofthe Future’. This features innovative customer service concepis such a elf-ordering kiosks, cates tranacton convenience, able service, digital menu boards and high-speed wifi connectivity McDonald gia platforms are projected tobe a main cause of growth. Inthe last three month, the MeDenala's app saw more than 317 millon downloade, out of wich 2.9 millon were registered users and 1.5 milion were active users. Discuss in a pair or a grou: + Whyisitimportant fora business such as McDonald to et Figure 17.1: McDonalds in Malaysia serves a eae a eee several menu items not avalzblein other + Assess whether alllrge restaurant chains should locals their counties menus or sel the same proces globally eee marketing objectives: the goals sot forthe marketing department ta help the business achieve its overal (corporate) objectives. i Anoiher definition comes from Contemporary Marketing 17.1 Role of marketing Wire. by Boone and Kure Most peopl think of marketing as bing about the “Marketing the process of planing and undertaking advertising and selling of products This isa very imited the conception, pricing, promotion and distribution view. Marketing is much more than just tling people of goods and services to create and maintain bout product and selling ito them, There are thousands tcatonships that wil satisfy individual and of definitions of marketing. One ofthe shortest and crpanaztonal objectives crests from the Chartered fstnte of Marketing Marketing involves a numberof related managemat Marketing is the management process responsible ee for ideniying, anticipating and satisfying customer requirements profitably + market research + produet design and packaging design + pricing, advertising and distribution marketing: the management tsk of dentijing and meeting the needs of customers poftably by geting the right product at the right pice tothe right place at the right te. m3)>> CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Marketing is very important business activity I inks the business tothe customer It ims to identify the particular wants and needs of customers in a target market “Marketing manager then ty to satisfy those customer needs more effectively than competitors This means that market research is needed to identify and analyse customer needs. With research results, strategie decisions can then be taken about product design, pricing, promotion and distribution. Marketing objectives and corporate objectives “The McDonald's Marktingin Mali’ ase above provides an example ofa clear marketing object. Other {amples of marlin objets nla a measurable the share of the marke, perhaps to gain market leadership ‘© total sales (value of volume or both) + average number of items purchased per ewstomer visit + frequency of shopping by yal customers + percentage of customers who return (customer loyalty) + numberof new customers + customer satisfaction © brand identity. “To be elfectve, marketing objectives shoul: 1+ elinked to corporate objectives and be focused on helping the business achieve those overall targets “+ bedetermined by senior management, because the Key marketing objectives wll impact on the markets and products a business trades infor years to come «+ be realistic, motivating, achievable, measurable and early communicated to other department Why are marketing objectives important? + They provide a sens of focused direction for the smatketing department and help the business 10 achieve it overall comporate objectives. Business success can be measured agains the targets se by the objectives. ‘+ Marketing objectives can be broken down into regional and product sales targets. + Marketing objectives form the bass of marketing strategy. Marketing objectives wll impact on the marketing strategies adopted ts necessary to ave clear vision ofthe business's objectives in order to ‘iscuss how marketing decisions can help to achieve them. Examples of marketing strategies include: + penetrating existing markets more Flyby sling ove to existing and new customers + entering new markets in other countries + developing ne, or updating existing, products, corporate objectives: wel-defined and realistic goals, that are st forthe whole company. marketing strategy: a plan of action giving details | Gihow a business intends to achieve its marketing ‘bjectives by eating competitive advantage, Coordination of marketing with other departments Markaing objectives and marking deisions cannot test rake cation from th es of the business ‘Thor must be coordination between al parents For trample ia moriting obtve of isreasing sales by Ticta eon seth makeing department Wl ee coordinate wth the allowing deparimens Finance ‘+The finance department will use the sales forecasts of ‘the marketing department to help construct cash fw forecasts and operational budgets ‘+ The finance department wil have to ensure that the necessary capitals available to pay forthe agreed ‘marketing budget for promotional expenditure. Human resources ‘Saks forecasts will be use by human resources to help prepare a workforce plan. For exampk, additonal workers willbe needed in sales teams and production to increase sales. : + Human resources must ensure the reruitment and selection of qualified and experienced workers. ‘There must be sufcient workers to produce and sll the inreased number of products planned by the ‘marketing department 2 TT m8)The nat of marketing os ’ - | Fgue 173 we demand ncresse Supply Demand 1 Sappiy vanes with price. Buameses wil be mor 1 be sccm sing 099 1» prodoct the pice rises ccs woth 4 pe fall ana fala wth ad wil soppy fewer of a prodact a the rie se by a typical demand fall This shown bya typxal sappy curve (se Figure 174) Figure 172 1 veatcrang betawen pce ae Figure 17-4 as)2. Apart fom changes in price, the level of supply of ‘4 product can vary due toa change in any of the Following factors: costs of production, such as an increase in labour costs ‘government taxes imposed on the suppliers, raising their costs ‘+ government subsidies to suppliers reducing thie costs ‘weather conditions and other natural factors ‘© advances in technology which lower the cost of production These factors arcealled the determinants of supply 3 Allof these changes can result ina new supply curve. For example, Figure 17.5 shows the supply of rice ‘ill fall to, after poor weather in the major growing areas, camry ais oped — Figure 17.5: Demand cune, S,shons the suply of rice falls aher a bad harvest Demand and supply changes 11 For each ofthe following changes: Identify whetho they affect supply or demand, Explain whether they cause supply oF demand to increase orf coffee after a bad harvest Rolls-Royce cars following higher shipbuilding following an increase in the pice ofstee! games consoles after a fallin the pice cf games. CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Determining the equilibrium price Demand and supply can be shown onthe same diagram ‘The price level at which demand equals supply called th csilbrium price see Figure 17.6) supply lution 0 Guanty sppted/dorandad— Figure 17.6: Equilibrium price i ot the point where demand equals supply the point at which the demand and supply cures intersect) Ifthe prices higher than the equilibrium price, there wil ‘be unsold inventory ~ excess supply Suppliers do not want unsold products They wil ower the price. If the prices Tower than the equilibrium price, then inventories will run ‘out, eaving excess demand. Supplies could make a higher profit by raising the price to the equilibrium eve Rice prices to keep rising Rice prices are likly to continue ting as demand) this essential food outstrips suaply. The price of rice has risen by 70% over 12 months. There are several factors behind the fis in price: Land fr rce growing has been lost 0 town development, Demand is sing asthe consumer incomes of ‘Asa’ midle cases rise Flooding in Bangledech and Indonesia and cold weather in Vietnam (ll major ice-growing areas) have cut production The prices of alternative foods have alzo Been rising rapidly. Explein two supply factors and two demand factors that hve ld tothe rocent increase inthe price of rie, strate the impact ofthese factors onthe fequibsium price of ree on a demand and supply diagram, 28)17. The nature of marketing AS Level 3.1 47.3 Markets Marketsare where buyers and sellers eet 1 engage in The daly or weekly rut and vegetable market miple ofthis Shopping centres and actions are ‘cr examples of makts. Increasingly, a market doesnot pane to be ina physical place in the sense ofa geographical focition. Online ations now mean that a market can cet electronically with no physical meeting between bayer and sell, ‘The term“ market also refers tothe group of customers who are intrested in a product and have the resources to purchase This understanding ofthe term market’ ean be Broken down into: +The potential market fora product, which sth total population interested inthe product. +The target marke, which isthe market segment of the {ota avaiable market that the busines bas decided 10 Aire its product towards | market segment: subgroup ofa whole market in wich consumers hae similar characters. Industrial markets and consumer markets ‘An indistial marke deals with products bought by businesses. These include specialist industri machines, tracks and ofc supplies A consumer market deals ith acts bought by the final users of the products. These Include mobile phooes holidays and fashion clothing The dferen approuces that might be neded to sellin indostsnl markets and consumer markets reexamined in Section 174. industrial matket: the sling of prodkcts by tusineses to other businesses, also known as business to business or BB. consumor market: he seling of products by businesses to the final end user, aso known as business to consumer or B2C. Local, national and international markets ‘Sorne business just sel in local areas to local customers. “They ony operat inthe local market. Examples of such business inlude laundries, list shops, hairdressers and car repair garages. ‘Some businesses expand their operations the national tart sling ther produets to customers throughout The whole country. This ies greater potential to incTease (ales compared 1 loca markets. Relatively few businesses Compared tothe thousands that operate ust in focal market wllexpand to seling inthe national market. ‘Common examples include banks, supermarket cains and large clothing tales, ‘Seling to the international market oles the greatest sales potential. The rapid rise of multinationals that operate and {alin many difeent national markets illustrates the sales potential fom exploiting international markets. Expanding Fn orsign market is significant strategic detson Many aspets of marketing wll have to change in order to ‘respond to the wide range of tastes cultures and laws in ‘ferent countries (See more detain Chapter 22.) Customer (or market) orientation and product orientation Important dsinetions an be made between usineses which focus on custome orictation and those which focus on pre rentation, ‘customer (or market) arentaton: an outwarcooking ‘pproach that bates product decisions on consumar ‘demand, a estabthed by marke esearch product orientation: an inwardlooking approach thet focuses on making products tha can be made ~ 0 hove been made for along ime ~ and then ying to sell them, Customer orientation requires market research and market analysis to measure preset and future demand. Customers and their needs come first. The busines will attempt to ‘produce what consumers want to bu. This approach has ‘important advantages, especialy in fast-changing, volatile consumer markets As consumers now have increasing awareness of competitors’ produc and prices they must be offered products they really want to bu. The benefits of ‘+ The chances of newly developed products failing in the market are reduced. Effective markt research hips to prevent product failures With the huge cost of developing new products, such a cars or computers most businesses use the customer-oniented approach to reduce the isk of fare ‘+ Products based on consumer’ needs will havea longer lifespan end be more profitable than those that are sold sing a product approach. EL | m)+ Market research never ends. Constant feedback fom customers will allow the product and the method of ‘marketing it to be adapted to changing tastes before competitors gt thee first Traditional productoriened businesses, which assume there will alas be a matke forthe products they make are fast disappearing, However, produc-led marketing still exists toa limited extent + Prodiuctoriened businesses invent and develop products as they believe that they wll ind consumers to purchase them, Pure research into technical innovations without consumer research sare bu til exists This is true in the pharmaceutical and electronic industries, for example, Dyson’ investment in bages vacuum cleaners is ako a good example. There isl he bali that if a business produces an innovative product of a ‘004 enough quality then it wil be purchased. + Produet-orented businesses concentrate their efforts ‘on efficiently producing high-quality goods They ‘elieve quality will be valued above market fashion, ‘Such quaity-driven ims do sill exis, especially in product areas where quality or safety is of great ‘importance, sich ss in the manufacture of advanced ‘medical equipment or crash helmets Classic Watch Company “The Classic Watch Company is in rouble. Sales have fallen for each ofthe last thee years. Hary. the founder ofthe company, cannot understand the reasons behind ths crs His business has been making the Classic Laces wristwatch for 120 years. nly recently have sales foed to increase annually “The current model has been updated buts stil essentially the same design asthe original atch. ‘Consumers ace atvacted tits simple, robust design and good value. These were important qualities during the economic criss of the lst few years. More recently, consumer incomes have started to tise. Old manvfoctuning industry has been repaced by sence sector businesses that offer wel- paid jobs ‘Youth unemployment has fallen ard young consumers have much more money to spend than previously Both men and women are becoming much more feshion-conscous a the consumer tastes change with higher incomes Hany knows his business must change. He does not know which new styles of watchs to introduce He almost wishes fora retuen tothe old days when consumers were happy to buy a recognised design at areasonable price 78) (CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK ‘Aralyse the impact on Harty’ business of it being productorented Evaluate the benefits to the Classic Watch Company of becoming customer orente. Evaluating the difference between customer and product orientation The tend is towards customer oventation, bt there ae limitations to this approach, Frequently updating ‘market research can be expensive. Also if business tried to respond to every passing consumer tend or market fasion, then t may wise is resources and end ‘pot doing anything particularly wel is expensive Fara business to offer sifcent choice and range to meet every consume need. In contrast, product orientation researching and developing a truly innovative product, can lead to high sles and prof, even f there has ben no Formal market research, Facebook isa good example Notall ewomer-orented businesses wll succeed, Markt, research and identifying consumer need ae not tuaranteeof business success. The new products developed in this way may come to market 19 ator fil to match ‘competing products Success and survival inthe competitive tnd globalied markets of the twenty-first century depend tpon the whole marketing proces ot just market research, Market share and market growth ‘The market Sizecan be measured in two ways: by the quantity of sales (units sold) or by the value of products sod (revenue) by all businesses inthe market oer a given time period. Market size is important for three reasons + Itallowsa marketing manager to assess whether a market is worth entering or nol, + trallowsa busines to calculate its own share of the marke ‘+ Thegronth or decline of the market over ting can be identified, market size: the total value (or quantity) of sles of all producers within a market na gvan time perod,Market growth ‘Some markets are obviously growing faster than others and sone are decining rapidly. Sales of desktop comptes. for example, have fallen greatly in recent years Ist better to be ‘operating in rapidly growing market? In most cases, yes but not always There might be many competitors entering the market atthe same time, so market she and profit ‘margins might be low. ‘Therate of market gromth depends on several actors ‘+ acountry’s rate of economic growth ‘+ changes in consumer incomes ‘+ development of new markets and procts that reduce salen exiting markets and products changes in consumer tases {echnological change, which can boost market sales following 2 new innovation whether the market is saturated because most consumers already own the product markat growth: the percentage change athe total sizeof a marke volume or vale) over a period of time. Implications of a change in market growth “There are several consequences to a busines rom a change in matket growth. These are summarised in Table 171 2 sen pe aut ae ‘You may need to do some simple calculations to work ‘out market growth and market share. tsa good idea to use a calculator to help you Sales the same, erase if the busines’ marketshare remains may be posible 1oincease pices and profit per unit. Increased sales could lead to cost savings see Section 262) More businesses might be atracted tothe maket, increasing the level of competion a | 17 The nature of marketing AS Level 3.1 Market share Market share, and increases it ian effective way to imeasure the relative success of one business marketing State agains those ofits competitors Maret share is called by asing the following forma: sales ofthe busines in ime period make share = Sti of the nines in time period 499 Total mart sls in ime pei Ur the market share ofa busnessis increasing, then the imarkting of ts product has ben more succesful relative toms of is competitors The produc with the highest taht share cle the brand eae brand leader: the brand with the highest shar of the market aay Implications of an increase in market share ‘Sales are rising faster than those of competing businesses th same market and this could also ead (ohigher profits Retailers wil be keen to stock and promote the best seling brand. These brands may be given the most ‘prominent postion in shops. ‘The business producing the brand leader may be able to reduce the discount rate to retailers (for ‘example, 10% instead of 15%), below that offered by the smaller, competing brands. The combination of this factor and the higher sles level should Jead to higher profitability forthe producer of the Jeading brand ‘The fact that am item or brandis the marke leader can be used in advertising and other promotional materia Consumers are often keen to buy the most popular brands. Sales wil increase more slowly even if the business’ ‘market share remains the same, Competitors might reduce priest increase sles in 2 slow-growing (shrinking marke. Lower pices might resutin lower profit per unit. Businesses might consder expanding ito fester rowing markets (e.g, n other countries) Table 17. Implications of changesin market gronth zm)\ Implications of a fall in market share ‘Sales ae likely to fll unless theres rapid market stot, + Retailers wll be ess ken to stock and promote the product. + Larger discounts to retailers might have tobe offered, The product may no longer bea brand leader, so promotions wll not be abe to state his. Tis not always easy to measure market growth or market share in an unambiguovs way Different results may be ‘obiained depending on whether the growth and share rates ‘re measured in volume ovale terms. For example if total sale in the marke or jeans rose fom 24 milion pais stan average price of $3210 26 million pairs at an average price of $36, then market growth could be measured i two ways: ‘+ By volume - the market rose from 24 to 26 milion units am inerease of 8.33% + By value the revenue os fom $768 million to 936 nillion, an increase of 21.88% Which of these two methods (value or volume) should be used to caeulate the changing marketshare for any one jeans manufacturer? Any manufacturer will use the ‘measure that reflec best on their own position. It may, therefor, be dificult vo compare changes in market share for different ims. A cosmetics company that specialises in selling low volumes of expensive products islikly to have ‘higher make share in value terms than when measured by volume Avtale of two markets “otal sales in market Ain 2020 were $4000 units The average selling price was $3, Total cales of market B in 2020 wore 10000 unis, The average selling price was $15. In 2021, soles volume of market A increased by 586 and the selling price incroased by 10% ln 2021, total sales value of market B was '$180000, detpite the average price fling wo512 CCoeulate the percentage increase in the total value of sales for market Abetween 2020 and 2021 Calculate the percentage increase in total sales volume in market & between 2020 and 2021 > CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Ki ‘You may need to make clear thatthe marketshare of 8 product can fall eve though its sales arising. This wall happen f market growth sata higher at than sales gouth of the business that sels the product Tesco is market leader in Thaland ‘Tezco Lotus, the brand name used by the European supermarket in Taian, has 10% ofthe food market in 220, hie a brand loader Total sales inthis sector mount to $55 billion. Two French-owned companies ‘peraing in Toland have the econ and thd rgect market shares Big Chas 7% and Carrefour 4% If ronfood tems are ined, then Tesco Lotus has 233% ‘matket hare. Online sales ae only around 2% of worl food sales in Tain, and Tesco wants to ineeaso the, Being matket leader gives Tesco Lotus a huge ‘advantage, and its ot standing sil. Ithas plans to ‘open many new convenience stores, ting the total number ofits shops in Thailand to over 2000. Taeco Lotus is also entering new markets. Ithas entered the fast-growing schoo-unifoom market, worth ‘$180 milion 2 year, wth prices 20-30% lower than ‘redtional shops. The Thai government has taken action to protect locally ned shops and to ensure goad consumer choice is maintained. A new law is propoted that would severly restrict the opening ofall new foreign-owned stores. Consumer groups are split on the new low. They want to keep the vaity offered by local stores, but ‘they aso enjoy the big stores and low prices, Figure 17.7: Tesco Lotus jpermarkatin Bangkok17 The nature of marketing AS Level 3.1 Industrial products are often classified into: rials and componens- needed fr production to take place (eg stel and electric motors for washing machines) Calculate Tesco Lotus sles inthe Thal food ratke in 2020. 2 Assuming Tesco Lots’ foad sales inceate by ‘$2 billion in 2021 and the total sizeof the Thai (ood matket increases by $1 bilion,c Tesco Lotuss 2021 marketshare + capital items equipment, machinery and vehicles (ee: lathes, IT systems and industrial buildings) + services and supplies ~ business serves and utes (ee. power supplies and IT supportimaintenance 3. Analyse two advantages Tesco Lotus might gan tom bere alee ees Gated, The key differences between sling to businesses rather than consumers are 4 Evaluate the extent to hich Tesco might have to adapt ts marketing fit wanted tobe succes in the food market in your country ‘+ Most industrial products suchas equipment for power stations, are much more complex than many consumer rodvets 0 speci sales employes and support, services wll be more important with BOB sling ‘+ Industral buyers often five much more market power and are better informed than the average consumer, 17.4 Consumer marketing (B2C) and industrial marketing (B2B) ‘They need tobe sold products by wellraind and spiced als employees The diferenes betwen sling consuners snd seling 10+ usta buyers wl arly buy on mpl They wil other businesses start with the type of products ‘only purchase after long consideration and detailed ena of aerate progestins seling Classification of products HBB to ee in er conact with nds A geeraldisietion can be made between goods and services produced for sal to individuals and households * —_‘THdtional mass media advertising and sales {consumer prot) and hese produced for industria use ‘promotion techniques are not used in most industrial Aaa ste) inarketsSeling can be via trade Firs or dret contact with industria buyers, ote, italy via websites ‘+ Mass marketing in consumer marketsisa common strategy but in most indusral makers there are relatively few buyers Products may need to be adapted to meet the needs ofa particular busines buyee. An cxampleof this would b fora very tall hotel buildin consumer products: goods or snes sold to fend users industrial products: goods or services sold Specialist elevator system to businesses, Consumer products are often cassie into: + convenience products - purchased frequently, often bought on impulse and sold toa large target market (eg, svees, soft drinks) + shopping products ~ usually require some planing and research by consumers before being purchased: ‘consumers donot buy these frequently eg washing machines) ‘speciality products bought infequentl often expensive and with trong brand loyalty (ears and designer clothing). Figute 17.8: Marketing power sation equipment i not the same ae marketing chocolate17.5. Mass marketing and niche marketing There wo dren approaches to marketing strategy: man moeig anal mating The hy distinguishing features of each type of market are outlined below. ‘mass matketing: sling sandardeed products oranges ‘of products in tho same way the whele mace, niche marketing: identifying and exploiting a smal segment ofa larger mater by developing | differentiated product to sut that segment. Mass market ‘+ This large market is made up of customers who are willing to purchase a standardised product (ndiferemtiated produc) + High sales levels allow for igh levels of production. ‘+ Low price is often key element in selling the product. “Mass marketing focuses on sling the same standardised product (or range of products) to the whole market. As consumer incomes rise and consumers develop more > CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Individual needs, mass marketing is becoming less frequently used, However, in the markets for cola drinks, toothpaste and washing-p liquid, for example, mass ‘marketing can til be observed. Niche market + Customers want to buy diferentated products ‘+ Size of a niche market is often smal, “+ Market research soften necessary to establish customers special neds [Niche marketing is often focused on a very small section ofthe total market. The niche might be one that has no, yet been identified and filled by competitors: Examples of firms employing niche marketing include Versace designs and Clinique perfumes Bot hese busineses el only expensive, high-status products, Other niche markets «xis for aon-lxury products oo, such as extreme sports clothing, and stretcher retail shops that sll only ‘very cheap items attracting a low-income segment of the markt. ‘Advantages and disadvantages of mass and niche marketing Both ofthese sratepies have their advantages and isadvantages (se Tables 17.2and 17.3) ‘Advantages ofrass marking + Amorematket strategy with high sales ofa standard product cen lead to loner average costs of peoduction, * Cost advantages can lead to lower prices to consumers which hep to reinforce the postion ofthe product in the rmatket + Mass marketing can restin extensive publicity forthe business and ite product leading to ear brand identity. * Lack of ciforentated products and diferentiateo marketing does not appeal to many consumers. + The focus on low prices doesnot help to establish 2 premium brand image for the product *+ Technological or other changes could lead toa fallin ‘demand forthe standarcised product. Overdependence on this products therefore aisky svategy ‘Toble 17.2: Advantages and dsadvamages of mass marketing 282 >17 The nature of marketing AS Level 3.1 {and thrive in markets that are dominated by larger fms + Anunexploited niche h - 136 no competitors. Selling to thi niche offers the chance to sella igh prices and high profit margins until competitors rect by entering too. Consumers will often pay more fr an exchisive product. + Niche market products and exclusive marketing can be used by large firms to create status and image. Their mass-market products may lack these qualtes, *+ Small market niches do not allow economies of scale to bbe achioved + “Theres limited scope for business growth f the niche market has few customers ‘The busines is vulnerable to market changes fit conly operates in one niche market. This makes ita risky rategy +f seing in a riche matkets profitable, this is likely to tact competitors. This could lead to lower prices and profitably Table 17.3: Advantages and disadvantages of niche matketing TI to sell premium cycles for niche market Tube Investment (TI) of India has entered the ultra ‘premium cycle segment with price ranges from $300 0 $4000, Though the market sie is smal Tl cannot afford to be absent fom this segment. 11 Cycles sold 2.8 milion standard bicycles last year. The marketing ‘objective fr the current year i 3.1 milion units. The ‘company started making electric scooter last year, t has aso launched BSA WodOuts exercise equipment. ‘The ulta-premium bicycles wil nat add great to total revenue, but they will help to take the brand upmarket as Indian consumers incomes increase. + Analyse why businesses such as! produce and sell products in different market segments. Evaluate whether a cycle manufacturer which sells products in your country should use mass marketing or niche marketing, 17.6 Market segmentation Market semetton isasiomer ote, oitiscosstent wiht coney of custome oretatin Sometins ‘Covuntaton eer oss dierent marking. Tiamat stone produ the we marke, borate poder treed at en segment Porat gmentaton oe sues buses ms treat tel mart cas. This allows te 0 en th pie consumer group hat et within the mat market segmentation: the identification of diferent ‘groups of eustomere with common needs within a rmatket and the matketing of diferent products or ‘seneee to those customer groups Examples of market segmentation include: + Hevlew-Packard and other computer manufacturers produce PCs for ofice and home us, including games, but also make laptop modes for businesspeople who travel, (Coca-Cola makes the standard cola drink forthe ‘mass market but also Diet Coke for weight-conscious consumers and other favoured drinks for consumers ‘with different tastes India's Tata Motors produces the Tata Ace, a mini- (ruck used by farmets. It markets the Buzzard car to midale CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Figure 17.9: Tata Motors offer Methods of market segmentation Successful segmentation requires business to havea cea analysis of Une consumers in its target market, The aim is to build picture of the typical consumer and their key characteristics. This consumer profile helps wih market research sampling and designing, pricing and promoting the produet, The main charactrists of consun ‘consumer profile are income levels age, sender, socal class and region. consumer profile: a quantified picture ofa business's consumers, showing data about ther age arours, income levels, loeation, gender and soci cls. “Total markets may be segmented in a number of different ways. The three commonly used methods of seymentation fare geographic, emographic and psychoeraphic Geographic differences Consume ats often vary betwen dileen soap teas These might res fom cultura, social ad climate dierences Many businesses therefor ofr erent products ‘nd market the in location specie ways Forexample a eating and refgrtion busines wil need to markt diferent rues to Malia compared wth Finland. ‘A geographic segmentation appoachs the opposite of ‘opting the same marketing stategy forthe whole area or tegion. Thisis sometimes refered to, for example a8 pane Asian or pan-European marketing. wil be infective if there ae great differences in consumer preferences in dierent geographical areas The way in which products are promoted may have to be adjusted fo diferent acographic locaton oo. Competitions o lotery-type promotions are ileal in some couniries. Advertising jeans o icecream with pictures, lerent types of vehicle to various market segments ‘of models ona beach would not be tolerated in some ‘communities Even product names must be changed to suit the language ofthe country Asin so many other aspects of marketing, accurate and etailed market research is esential before entering imernational markets Demographic differences Demograpy isthe study of population data and tends and demographic factors, suchas age, ender, income, family sz, socal class and ethnic background, canal be tse fo segment the market, For example, a construction business will use information on these actos to help demi the appropiate market segment for anew block of apartments Should they build retirement flats with resident caretaker? Should they build smal studio fats for young single people? Should they offer interconnecting {doors and walkways to attract extended families tothe apartments? Its unlikely thatthe construction firm will alterpt to attract all market segments but, having decided. ‘on the most appropriate one it wll need to adapt the prise and promotion strategies towards this seg Income and social class are important demographic factors ‘tha identify socioeconomic groups and can be used to segment the market, An individna’ occupation tends to determine ther socal class and will have an impact on their income level, The main socioeconomic groups that commonly refered to are: A~ higher managerial, administrative and professional personnel, for example directors of big companies and successful lawyers 'B- managerial staf, including professionals such as teachers C1 supervisory erica or junior menageral stall (C2 skilled manual workers 1D semi-skilled and unsiled manual workers casual, parttime workers and the unemployed. Se TT | 204)‘he jobs people do are one ofthe main factors influencing theirincome levels. An individual's social class and income level may havea great impact on thei spending patterns High-income earners in professional jobs will have very diferent consumption patterns from low-income manual ‘workers. Powerboating and golfing ae just two activities that are associated with consumers i high ineo professional eccupations ‘Many marketing acronyms have been creted to act as abbreviations for different demographic groups of consumers Here ae just a ew ‘+ DINKY ~double income no kid yet. + NILK ~no income lots of kids ‘+ WOOF - well-off older folk Pychographic factors, “These factors are to do with differences between peoples Iiestyles, personalities, values and atitudes. Many ae influenced by an individuals social clas. For empl, many middleclass families spend considerable sums of ‘money on private edacation for tei children. This might not be such a prioity for other social clases or groups Aitudes towards ethical business practices, such as Fairtrade products, ae very strong among some ‘consumers. This explains the development of marketing {owards these groups. Silay, the increasing interest in Advantages and disadvantages of market segmentation * Businesses can define thor target market precisely, and design and preduce goods that are specifically aimed at these groups lesding to increased sales. + feenables identification of gaps inthe market and groups ‘of consumer that are not curently being targeted, ‘which might then be successful exploited, + Diflereniated marketing strategies canbe focused on front target markets. Ths aids wasting mney on trying to sell products to the whole market. Some consumer ‘reups willave no intention of yg the product ‘+ Small firms that are urable to compete in the whole ‘market are abe to specials in one or two market segments + Piice discrimination between consumer groups can be sed to incraase revenue and profits ee Secon 19.4) + Promotional costs might be high as ferent + Price ander king cowie igen + By focusing on one or two limited market segments, + Extensive market rsoarch i needed to identify market 17. The nature of marketing AS Level 3.1 ‘organic foods shows how common valves and opinions can also be used to group consumers in a usefil way Lifestyles a very broad term that often relates to ‘people's opinions, interests and choice of leisure atvities Tncreasing concern amongst some consumer groups about health an fitness has led to significant increases in private gym membership. Personality characteristics are dlficult to measure or define, but they do influence consumption decisions. Many businesses, particuaey in their advertising attempt to appeal to consumers who share certain personality characterises, Products such as activity holidays are aimed at outgoing people who wish to pursue relatively dangerous sports These include mountain trekking, bungee jumping and whitewater rafting Malaysia is @ multicultural and multiethnic county. This allows for cles market segmentation in tha frazen seat market. Hindus and some Budchst are not Silwed to eat meat and Musime are not allowed to ‘eat pork. Lee's Frozen Meats in Malaysia claims strict halal acreltation forts products, so they are suitable for Muslims who make up 62% ofthe population Discus in a pat or a group: Do you think income and socal das also iluence the type of meat products consumers buy? Be prepared to justly your answer Research and development and production costs might be high as arsut of needing to make and market alferent produc variations. adveriserents and prometions might be needed for cifferent segments. Marketing economies of scale may not be fly expe. fer prodicing and seling just one unifeentiated product excessive speciation could lead te problems conaumes in those segments change ther purchasing tabi signifcay. segments and ther needs. Table 17.4: Advantages and disadvantages of make segmentation a AT ET 2s)> CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Understanding market segmentation isthe key to repeat visits by tourists According toa study bythe School of Tourism at Hong Kong Univers, the key to boosting the number ‘of tourists re-visting the region i for companies to ‘understand market segmentation. In a survey of 1300 travelers passing through Hong Kong International Airport, the study dentfied six distinct groups cof tourists, who need tobe treates diferent by marketing activites, The six groupe were *+ leisure travellers, aged 5S years or younger + fistsime mature travellers, aged $5 years or older + repeat mature traveller: + business travellers with incomes over US$S0000, peryear + business travelers with incomes under USS50000 per year ‘+ vaveles visting fiends o family in Hong Kong ‘These groups need different marketing activites to-encourage repeat vats. Young, single, lesure travelers might be atvacted by promotions ofering discounts for bringing 3 fiend. Highncome business travelers might be more influenced by promotions (on the wide range of lure and shopping fetes inthe region, Mature repeat vavellers made up just 4.5% of the total ample, suggesting that this was 2 market segment that needed to be much more fly developed. The segment that needed litle ational ‘marketing focus was made up of those visting family ‘nd fiends as they would be likely te wst Hong Kong again anyoay Figure 17.10% Tourists Hong Kong 26) Explain why successful market segmentation needs tobe supported by market research Use the above case as an example in your answer. [Analyse two ways in which this research allows the total touret market of Hong Kong to be segmented, Evaluate the benefits oa travel company in Hong Kong of targeting different seqrments ofthe tourism market wth dflerant marketing activites, Ea a 1m preparing your answer to Q3in Activity 177, how dd you assess whether the benefits of market ‘segmentation outweighed the mations in this ‘context? Did you consider nat segmenting the market at al? Did you consider the factors that determine the most appropriate form of segmentation? Discuss your conciusions wth another learner. Oid your | partner reach diferent conclusions? How would you ‘efend your own conchsion? Or can you now eric your own conclusion? 17.7 Customer relationship marketing ‘The objective of customer relationship marketing (CRM) is todevelop customer loyalty to ensure that customers buy from the busines inthe future. Studies have shown that it can cost between four and ten times as much to gain nee «customers (with expensive promotions) sit does to keep ‘existing ones. CRM also makes sense for another reason fa business ean secure the loyalty of many eustomes, it ‘means that there willbe Fewer customers buying products from competitors, customer relationship marketing (CRM using ‘marketing activites to bull and establish good customer relationship so thatthe loyalty of exsting customers can be maintained.At the heart of CRM is communication with the ceastome to gain information, The aim sto gain as much information as possible about each existing custome. This includes income, product preferences buying habits and soon. Using this information, marketing tactics can then be adapted to meet the customer’ needs Thisis virtual menting each customer and isthe complete opposite ‘of mass marketing. Now that technology has made the collection of customer data so much easier and cheap, CRM is becoming a widely adopted marketing strategy. Developing effective longterm relationships cam be achieved by ‘Targeted marketing ~ giving each customer the products and services they have indicated, fom records of past purchases, that they most ned. Customer service an support afiesules service and effective call centres ae good examples ofthe support essential to building customer loyalty. ‘+ Communicate regularly with customers to ve frequent updates on new products! special oes new features / new promotions and support services ‘+ Using social media ~ some CRM systems use soa ‘media sites to track and communicate wit estomes Feedback management software platforms, such 48 Confirmit and Satmetrix,combine a company’s internal survey data with ends identifi through social media, Thisallos businesses to make more accurate decisions about which products to supply to satisty customers’ needs Costs and benefits of CRM ‘The costs and benefits of CRM ned tobe considered before a business adopts this strategy (sce Table 175) + [Tsystems and software [+ Forbusinesses wth on ae needed and esting customer base, employeesneed tobe | CRM has proved to be trained torespondto | —cost-tecie. Higher customer feedback sales from affective CRM neaty aby + Effective CRM exceed ts cost campaigns may require theuse ofenextemal [+ Itisa sustainable rmatketing consutency | strategy creating long at high cost, tem customers une ‘special price offers’ or mia promotions 17 The nature of marketing AS Level 3 + CRM need an exting casrer bebe estblaed fatbefore evesing n CM. is iot doe, the oi nated thighr les © Loyal customers ctten recommend the busines to friends and fail, proving adeltional marketing benef at no cost + may becostyto | respond to each customer than trying to customers feedback, | atractrew customers. especialy iit contains special request or requirements, Ieeosts less por Table 17.5: Costs and benefits of CRM KEY CONCEPT LINK Innovation in CRM is proving to bea ory elective marketing strategy for businesses such a5 Zara Zara has some ofthe mast yal consumers in the fashion clothing retail industry. On average, is loya customers buy is products sxtimes a year The fashion industry average is two to thre times a yea Zara. uses CRM more effectively than any other clothes retailer, which important as up to 80% of all lthing sales ae to lyal, repeat customers. Figure 17.11: The coat sthionable now, but Za needs to know fit wl stil be fashionable next moth Discuss in a pat or a group: Why do you think CRM 'paticdaly important for busines: nthe fs changing fashion market? 27)CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Current state of the market Research the market size for eats or mobile (cll phones in your county. 1s the total size of the market rising o aling? 2 Which four companies have the highest marketshare and which ae the bes eling models? White a bref report onthe current state ofthis market your county. Short answer questions 1. Define the term ‘marketing 2 _ Explain one difereace between custome argntation and product orientation. '3__Analyse one benefit to business of being customer-oriented, 4 Explain one reason why a business that has the second largest market share would be keen to become market leader. 5. Explain one factor that could ead to-an overall decline inthe size of a market 6 Explain one factor that could ead toa business experiencing decining market share in a growing market 7 ‘Analyse one benefit c a bisiiess of using massImarketing. 8° Explain one way of sepmenting« market 9 Explain one diference between selling to industrial markets and selling to consumer makes. 10 Analyse one benefit ton online she retaler of customer relationship marketing, 11. Explain one possible example of marketing objectives that Coca-Cola might set 412 Analyse one stategy that Coci-Cola could use to help the business achieve this objective. 13 Analyse one way a manufacturer of sil cats Could segment the market forts product. 14 Explain one benefit to a jnellery retailer of segmenting the market it operates in 415 Explain one difference between markt thare ad market sie 16 Explain one problem fora busines if fails to link marketing decisions with ober business departments 47 Analyse one way a manufacturer of jeans could try to increase market share. 48 Analyse one way a retailer could improve is customer relationship marketing, 419 Analyse one reason why an electric oven rianufacturer might need to adapt its marketing when it stars mnurkting fo bsaes exo Sucha stauant chins (02). Essay questions ae ‘ 4. a. Analyeswo Benet fuss of ting ariting objectives on 'b- Themanaging decir ofa small boat- building business told the other directors, ‘Ther is no ned to do ‘market research, We hae designed the best product on the market and coasumers wil be certain to buy” rau this ew na) 2 Analysetwo nays in which sof drinks manufacturer night segment te markt frie product. 18) 1b Evaluate wheter busines should eter allocte more esures to customer relationship marketing ot reduce piss 12) a 208 )17. The nature of marketing AS Level 3.1 Data response questions Furniture Metallica (FM) Bill Yangis a qualifed engineer. He started his corapany Furniture Metallica Ltd (FM) in Malaysia inorder to t2ke advantage of his metalworking sills after losing his jb ata steelworks. He se up 2sinal workshop 18 yeas 386 He quell built up a repatation fr quality metal furniture, which be sol to large companies wsing B2D marketing ee was lucky, as during this period ther was market gro for ofie and business metal furniture. FM'S shar of ‘this market increased rapidly. JIn2021, this optimistic picture changed. Demand fr long-lasting busines furiture fll and new plestic technologies were stating to transform the market. Meal furniture seed old-fashioned, Bill had no knowledge of other materials and his metal furiture designs had not changed, Sales and market share fl (© Table 17.) Bil decided to revise his original business plan. His corporate objective remained profitable growth, His marketing ‘objectives changed to: increase sales in markets other than Malaysia. “© mintsn marketshare for metal business forniture in Malaysia. ‘= test Malaysian consumer markt for metal furniture. Bill researched ofce furniture markets in parts of Asia othe than Malaysia. He exported to Indonesia forthe firsttime in 2021. Hes aiming for 5% marketshare there inv years Next year, e plans to start selling onine to ‘consumer markets He wil extend the product rangs He has adapted his meta office furniture design into coffee tables earner work units and home shelving units. ‘Another pln isto make a low-cost range of metal lockers to appeal to the sthoo] and college market. frend ‘who hd recent returned from a Europedn business rp encouraged him to thnk about exporting to this huge “market to0 Malaysia Seesmic os ‘eae __|200 8 58 S20 __ [20 a 7 zozt | 180 $20 0) a “Table 17.6 Market and sales data for EM “dently one feature of B28 marketine t plan the term ‘market growth, Bi efecto Table 176. Caleslate FM's Mabiyion marketshare in 2021. rer “L_Explain one eason forthe ein FM share ofthis market tl “ec _Anale to ways in which FM il acd to adapt its makeing tobe sucess in consumer markets. Bhatia the benefits to FM of Bil plan to use market segmentation ofthe uriture market. * [12] das and Ropha | Aides uses mass markstng sll cheap sports shoes to poor rural populations in India and Bangladesh This iin canis its niche marketing strategy of dspning Aas performance shoes and sling tem to middle-ncome "Up These consumers wan! bot se and exellent sprig performance Com their shoes "Raph, sal UK bran with aes ls than 1/00 of big osieses suchas Nike and Adidas, sls ecusve | ei sts of sports hoes to specialist matket seamen icladng profesional cyclists The demand from tht Inaket samen is zoning faster than the total market for athletic Fotwear. 29)> CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: COURSEBOOK Te global footwear market was valued at $222 lion in 2019 andi forecast o grow by 3.6% per year fr the next decade. Sports shoe manufacturers have many direct competitors so differentiating their products is important 4 i entity one benefit of mass marketing a) Explain the term ‘market segments 8 bi Caleuate the forecast size ofthe global athletic footwear market by 202 a ii Explain ne reason why Adidas mus increase sales by more than 3.6 iit aims to inereas its sare ofthis global market cc © Analyse two benefits of mass marketing to (a) ‘d-_Evaluatethe decision by a busines such as Rapha to oaly sel premium products to small market segments ay ‘Undetstand the role of marketing and the importance of setting marketing objectives ‘nnlyae the dillerenes that exist between consumer markets and Industrial markets ‘alelate and analyse data on market size, market growth and marketshare i ‘Understand the impact of changes in demand and supply on prices ‘Evaluate te differences between product and customer orientation approaches to marketing Evaluate the advantages and disadvantages of niche marketing and mass marketing “Evalue ways in which market segmentation can be used Yo mse the needs of diferent consumer groups | Tvaluate the importance of customer relationship marketing (CRM) a = 20)